British manufacturing is still a good prospect
Tom Bulford - Fri 18 Apr, 2008
City short-termism continuously ignores high quality businesses
Back from holiday I trawl through ten days of company announcements, to find that one of my supposedly long-term relationships may soon become no more than a quick affair. Raymarine, a company that I had tucked away in my ISA has announced ‘a preliminary approach which may lead to an offer.’ The share price has duly jumped and while this, like a swig from a whiskey bottle, gives me a quick thrill I am not so sure that it is good for my long-term financial health.
Good investments are hard to find. My hunting ground, the UK stock market, does not offer an unlimited supply of world-beating companies. So when I find one that is growing its profits, paying rising dividends, making astute acquisitions while all the time focusing on an area of undoubted long term growth I am in no hurry to give it up.
If a bid does come, then I can only hope that I get a proper price for my shares, and that this is not an attempt by the management to take the company private on the cheap - for which, by the way, I could hardly blame them.
This is a view shared by Adam Steiner, of SVG Investment Managers, which has a 0.39% stake in the company. In his opinion ‘Raymarine is a highly coveted asset in a long-term growth market and should appeal to private equity and trade buyers alike, of which there are several potential 'fits' in the market place....we would be surprised if shareholders would accept an offer below the price at which the company was trading a year ago’ - which was 450p.
We shall see. But what really echoes is the term ‘a highly coveted asset.’ Raymarine sells all manner of necessary equipment and instruments for the boating crowd. Now my boating experience is limited to one brief and unhappy sail around Poole harbor during which I somehow managed to lose my spectacles overboard and then spent the afternoon regurgitating the greasy mackerel that had been served up for lunch. But I don’t mind looking at boats from the safety of dry land, and whenever I get within sight of the sea I notice marinas absolutely stuffed full of them, all clearly owned by people with money to spare. So I reckon that Raymarine, which sells radar systems, chartplotters, fishfinders and other such gadgets should be on to a good thing.
And yet the shares trade on no more than ten times this year’s earnings. So if this is the ‘highly coveted asset’ that I think it is, or at least should be, this is certainly not reflected in today’s share price. Despite the fact that luxury yachts are not typically owned by those facing foreclosure on their mortgages, Raymarine seems to be suffering from a generalized fear about the spending power of the US consumer and also from the desire of panicky City fund managers to convert any holdings in small companies into cash at the first opportunity.
This is not an isolated incident. Another esteemed UK manufacturing company Enodis has accepted an offer from the Manitowoc Company of Wisconsin at 260p per share - an 80% premium to the price prevailing in the stock market. Engineer FKI is facing a bid from Melrose. Titan Europe, which makes huge wheels for tractors and earthmovers, has received a bid from US parent company Titan International. Oil services company Expro International is facing competing take-over bids and looks likely to follow two other small manufacturers in this sector Sondex and MTL Instruments, both of which have been bought by larger rivals from the USA.
Without exception these bids have been at substantial premiums to the value placed upon these companies by the London stock market. It is clear that City investors, obsessed as they are by short-term performance and unable to look beyond the next earnings report, simply do not understand the value of these companies.
It never fails to amaze me that a company can be scorned by City fund managers for year after year - and then suddenly a take-over bid comes along and no price is too high. It amazes me, but it does not upset me too much because it is precisely this brainless short-termism that gives you and I the chance to buy great companies at great prices. So where should be looking, now?
Contrary to the popular view that UK manufacturing industry is dead and buried there are several manufacturing companies based in this country that have fine records, excellent prospects and a global reputation for excellence. It is true that some of the manufacturing itself might now be done overseas, but the intellectual rights and the ownership reside in this country.
Off the top of my head I would place Domino Printing, Renishaw, Cobham, Vitec, Spirax-Sarco and Hamworthy in this category, and I am sure there are several more. Any of these could fall into the hands of a larger overseas bidder at some time. So buy quality - and you might get a nice surprise!
Regards,
Tom Bulford
For The Daily Reckoning
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